The Reserve Bank recognises the possibility that growth could lose some of the robust momentum seen in recent quarters and that there could be risks to economic stability from a combination of high inflation, a wide current account deficit and loose fiscal policy.

Against the backdrop of these risks, its calibrated pace of monetary tightening is possibly the best approach as a more aggressive stance, at this point, could be disruptive.

Rising borrowing costs are already causing concerns of lower corporate profitability.

The RBI faces a unique situation with inflationary pressures staying stiff, and growth slowing. Clearly, current inflation levels are high.

The March-end inflation forecast of 7 per cent is uncomfortably high even when compared with historical trends. Bringing the inflation rate down to more acceptable levels of 5–5.5 per cent at the earliest is necessary.

With some of the recent tightening of interest rates getting transmitted to the economy, there is a hope that pricing pressures will ease.

Besides, the central bank would be hoping that measures to enhance the output of some key commodities (especially food) and an improvement in the quality of government spending to enhance supply in the market will be important factors in bringing down inflation on a sustained basis.

While the policy moves are along expected lines in terms of a tightening in the repo rate, the Reserve Bank of India has done well to moderate its approach so that growth doesn't get impacted.

(The author is Regional CEO - India & South Asia, Standard Chartered Bank).